The current study investigates whether tournament incentives motivate chief executive officer to be socially responsible. Furthermore, it explores the role of sub-national institutional contingencies [i.e., state-owned enterprises vs. non-SOEs, foreign-owned entities vs. non-FOEs, cross-listed vs. non-cross-listed, developed region] in CEO tournament incentives and the corporate social responsibility performance relationship. Data were collected from all A-shared companies listed in the stock exchanges of China from 2014 to 2019. The study uses the baseline methodology of ordinary least squares and cluster OLS regression. (...) Moreover, firm-fixed effects regression, two-stage least squares regression, and propensity score matching deal with the endogeneity problem and check the robustness of the results. The results provide reliable evidence that tournament incentives motivate CEOs to be more socially responsible. On the other hand, sub-national institutional contingencies positively affect the association between CEO tournament incentives and CSRP. The findings have important implications for companies and regulators who wish to enhance CSP by providing incentives to top managers. (shrink)

China’s historical mixed-ownership reform (the Reform) has prioritized enhancing the efficiency and financial performance of its large state-owned enterprises (SOEs) through introduction of partial private-sector equity ownership. However, the presence of a significant gap between China’s private enterprises’ corporate social responsibility (CSR) practices and those of its SOEs suggests potential for Reform-related ownership changes to negatively impact economy-wide CSR performance. We therefore examine the Reform’s impact on private acquirer firms’ CSR practices. We use a proprietary data set of firms listed (...) on the Shanghai and Shenzhen Stock Exchanges, covering the 2011–2015 period. Our findings identify that private firms can enhance their economic and political status through acquiring equity in state-controlled or SOEs and, following this, improve their CSR practices. Our findings have policy implications in the context of the world’s largest emerging market and, more generally, for SOE ownership reform in emerging and transition economies. (shrink)

The sizeable theoretical and empirical literature on corporate social responsibility and business ethics in Western, developed economies indicates that the topic has attracted significant interest from academics and practitioners. There is, however, less evidence of the practice of CSR and business ethics in non-Western, transition economies, as insufficient attention is paid to the contextual specifications and underlying processes that may lead to different versions of CSR. Therefore, this paper examines the practice and sense-making of CSR and business ethics from the (...) perspective of the fertile and under researched post-communist context of Central and Eastern Europe, to join the growing academic debate about the impact of cultural and historical traditions on the practice and sense-making of CSR and business ethics in non-Western contexts. The study adopts a particular focus on the post-communist and under researched context of Bulgaria where CSR is still a relatively new phenomenon. By following an exploratory research design and by collecting qualitative data from 34 executives employed by public and private sector organisations in Bulgaria, the study finds that the local business environment is composed of a complex mix of various institutionalised pressures and challenges that predispose organisations to adopt a particular approach to CSR, ethical misconduct and CSR-washing. Apart from the significant contributions related to the practice, understanding and contextualisation of CSR in non-Western countries, the study also identifies challenges of business ethics in transition economies and adds depth to the emerging literature on CSR-washing by proposing a model for neo-communist CSR-washing. The study also offers contributions for practitioners and policy-makers. (shrink)

This is the first study to examine the relationship between sustainability and soundness in banking as part of an integrated reporting approach. We consider 12 major European banks over the period 2006–2016. To test the relationship, two indexes were constructed, the sustainable performance index, which attempts to measure sustainability, and the banking soundness index, which measures bank soundness. The results show a bidirectional causality between sustainability and banking soundness. More specifically, soundness encourages banks to engage in sustainable development activities, while (...) the implementation of a sustainable development approach has a negative effect on banking soundness. Our research contributes to the literature on this topic in two ways. First, we propose a new method for measuring banking soundness based on a Bayesian approach. This approach allows us to study a large number of criteria and allows us to determine proactively the importance and the contribution of different determinants in achieving soundness. In addition, to the best of our knowledge, this is the first study that attempts to study the relationship between bank soundness and sustainability. (shrink)

Prior research suggests that the media plays an important information intermediary role in capital markets. We investigate the role of the media in influencing firms’ engagement in corporate social responsibility activities. Using a large sample of 4396 unique firms from 42 countries over the period 2003–2012, we find strong evidence that firms engage in more CSR activities if located in countries where the media has more freedom. This relation is robust to using various proxies for media freedom, an alternative source (...) of CSR data, and to applying the instrumental variables approach to address endogeneity. In additional analyses, we find that the positive relation between media freedom and CSR engagement is stronger for better governed firms and for larger firms. Since the media have the ability to impact reputational capital, we conclude that media freedom affects firms’ incentives to engage in costly CSR activities. (shrink)

This paper examines the association between corporate philanthropy and tunneling by controlling shareholders. Using a unique dataset from China, the paper finds evidence that firms donating more are less likely to tunnel. The negative association between philanthropy and tunneling is stronger when firms are faced with more severe agency conflicts, as indicated by lower largest shareholding, fewer growth opportunities, lower state ownership, and weaker product market competition. The results suggest that companies engaging in philanthropy have incentives to enhance their reputations (...) and improve their relationships with stakeholders. (shrink)

The relationship between corporate social responsibility and corporate financial performance has long been a central and contentious debate in the literature. However, prior empirical studies provide indefinite conclusions. The purpose of this study is to review systematically and quantify the CSR–CFP link in a meta-analytic framework. Based on 119 effect sizes from 42 studies, this study estimates that the overall effect size of the CSR–CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Furthermore, (...) this work sheds light on the causal relationship between CSR and CFP. Subsequent financial performance is associated with prior social responsibility, while the reverse direction is not supported. This finding supports the instrumental stakeholder theory. As predicted, the meta-analysis results indicate that the measurement strategies of the two key constructs of CSR and CFP explain some variations of the CSR–CFP relationship. Last, this study examines the moderating effect of the environmental context on the CSR–CFP link. This work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world. The results show that the CSR–CFP relationship is stronger for firms from advanced economies than for firms from developing economies. (shrink)

The value relevance of corporate social responsibility performance disclosures for financial markets participants remains uncertain despite advances in the literature and the recent proliferation of CSR disclosures around the world. Using an experimental approach involving MBA students at universities in the United States and Lebanon, we study the value relevance of CSR disclosures by testing whether they affect participants’ personal portfolio management investment decisions. We also examine whether the degree to which the CSR disclosures affect these decisions is influenced by (...) corporate governance quality. To examine these issues, we examine the effect of environmental performance on investment decisions in Experiment 1, and the effect of labor performance on investment decisions in Experiment 2. Results from both experiments show that investment decisions are affected by CSR performance. Analysis shows that governance strength exerts a marginal effect on the investment decision only when CSR performance is strong. Lebanese participants appear to be more sensitive to weak performance than U.S. participants. Overall, our findings extend the CSR disclosures literature by documenting the value relevance of CSR performance for financial markets participants’ decision making. These findings also extend the governance literature by documenting that consistent with attribution theory, the effects of governance quality are contingent upon the information and decision context, and that efforts to decontextualize governance may be counterproductive. (shrink)

In this article, we examine the empirical association between firm value and CSR engagement for firms in sinful industries, such as tobacco, gambling, and alcohol, as well as industries involved with emerging environmental, social, or ethical issues, i.e., weapon, oil, cement, and biotech. We develop and test three hypotheses, the window-dressing hypothesis, the value-enhancement hypothesis, and the value-irrelevance hypothesis. Using an extesive US sample from 1995 to 2009, we find that CSR engagement of firms in controversial industries positively affects firm (...) value after controlling for various firm characteristics. To address the potential endogeneity problem, we further estimate a system of equations and change regression and continue to find a positive relation between CSR engagement and firm value. Our findings support the value-enhancement hypothesis and are consistent with the premise that the top management of US firms in controversial industries, in general, considers social responsibility important even though their products are harmful to human being, society, or environment. (shrink)

This paper examines the role of mutual funds in corporate social responsibility. Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote (...) in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in. (shrink)

Business Ethics: A European Review, EarlyView.

This study examines the relation between a firm’s business strategy and its corporate social responsibility performance. Using a comprehensive measure of business strategy based on the Miles and Snow theoretical framework, we find that firms following an innovation-oriented strategy are associated with better CSR performance than those following an efficiency-oriented strategy. Specifically, compared with defenders, prospectors engage in more socially responsible activities, fewer socially irresponsible activities, and perform better in both stakeholder- and third-party-related CSR areas. Taken together, our results suggest (...) that business strategy is an important determinant of CSR performance. Prospectors take advantage of CSR, as their innovation-oriented strategy allows them not only to benefit more from CSR, but also to have more tolerance for the uncertainty, risk, and long time-horizon associated with CSR engagement. (shrink)

This study examines the endogenous relation between corporate social responsibility and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms’ CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find (...) that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities. (shrink)

In this paper, we draw on insights from theories in the management and corporate governance literature to develop a theoretical model that makes explicit the links between a firm’s corporate social responsibility related board attributes, its board CSR strategy, and its environmental and social performance. We then test the model using structural equation modeling approach. We find that the greater the CSR orientation of the board, the more proactive and comprehensive the firm’s CSR strategy, and the higher its environmental and (...) social performance. Moreover, we find this link to be endogenous and self-reinforcing, with superior CSR performers tending to further strengthen their board CSR orientation. This result while positive is also suggestive of the widening of the gap between the leads and laggards in CSR. Therefore, the question arises as to how ‘leaders’ are using their superior CSR competencies seen by many scholars as a source of corporate competitive advantage. Stakeholders of corporations therefore need to be cognizant of this aspect of CSR when evaluating a firm’s CSR activities. Policy makers also need to be cognizant of these concerns when designing regulation in this field. (shrink)

This paper aims to critically review the existing literature on the relationship between corporate governance, in particular board diversity, and both corporate social responsibility and corporate social responsibility reporting and to suggest some important avenues for future research in this field. Assuming that both CSR and CSRR are outcomes of boards’ decisions, this paper proposes that examining boards’ decision making processes with regard to CSR would provide more insight into the link between board diversity and CSR. Particularly, the paper stresses (...) the importance of studies linking gender diversity and CSR decision making processes, which is quite rare in the existing literature. It also highlights the importance of more qualitative methods and longitudinal studies for the development of understanding of the diversity–CSR relationship. (shrink)

This study examines the impact of corporate social responsibility activities on insider trading. While opponents of insider trading claim that the buying or selling of a security by insiders who have access to non-public information is illegal, proponents argue that insider trading improves economic efficiency and fairness when corporate insiders buy and sell stock in their own companies. Based on extensive U.S. data of insider trading and CSR engagement, we find that both the number of insider transactions and the volume (...) of insider trading are positively associated with CSR activities.We also find that legal insider transactions are positively related to CSR engagement even after controlling for potential endogeneitybias and various firm characteristics. Furthermore, our evidence suggests that firms perceive adjustment to CSR dimension of product as being efficient, while adjustment to diversity and environmental CSR as being inefficient. Our results of bad and illegal insider trading proxies are consistent with the interpretation that firms with high CSR ratings do not attempt to engage in unethical or bad insider trading in a significant fashion. Combined together, we consider our empirical evidence supportive of the fairness and efficiency explanation, but not the unfairness and inefficiency hypothesis. (shrink)

This study reviews and synthesizes the contemporary business literature that focuses on the role of corporate social responsibility to enhance firm value. The main objective of this review is to proffer a precise understanding of what has already been investigated and the findings of those investigations regarding the value-enhancing capabilities of CSR for public firms. In addition, this review identifies gaps in the existing literature, evaluates inconsistent findings, discusses possible data sources for empirical researchers, and provides direction for exploring other (...) promising avenues in future studies. The thrust of the CSR literature largely acknowledges the value-enhancing capabilities of firms’ social and environmental activities. However, the predominance of inconsistent theoretical grounds in major CSR-benefits-related areas suggests that there is ample room for future research to contribute to the extant literature. Anecdotal evidence, the prevalence of theoretical arguments, and the availability of large cross-sectional firm-level data suggest that future research will enrich the literature by investigating the real insights behind several unanswered questions, by establishing implicit understandings regarding recognized findings, and by developing new theories in this emerging field. (shrink)

Workforce diversity has received increasing amounts of attention from academics and practitioners alike. In this article, we examine the empirical association between a firm’s workforce diversity and the degree of religiosity of the firm’s management by investigating their unidirectional and endogenous effects. Employing a large and extensive U.S. sample of firms from the years 1991–2010, we find a positive association between a measure of the firm’s commitment to diversity and the religiosity of the firm’s management after controlling for various firm (...) characteristics. In addition, after controlling for endogeneity with the dynamic panel generalized method of moment, we still find a positive association between the firm’s diversity and management’s religiosity. We interpret these results as supportive of the religious motivation explanation that views the firm as a human community and considers religion as a factor that influences managers to more positively embrace diversity. Our results, however, provide no support for the resource-constraint hypothesis that views the firm as a nexus of contracts and sees managers as aiming to maximize shareholder returns under resource constraints that force them to invest only in projects that have a positive net present value and reject diversity initiatives since these do not have a positive NPV. (shrink)

The purpose of this study is to extend prior research on this topic by investigating whether the impact of ownership concentration moderates the link between corporate social performance and financial performance. This study uses a set of unique, hand-collected pollution control data to measure CSP, based on a sample of Taiwanese listed companies during the period from 1996 to 2006. The results of the empirical analysis provide firm support for the idea that the divergence between control rights and the cash (...) flow rights of controlling owners negatively moderates the link between social and short- and long-run FP. (shrink)

In this article, we examine the empirical association between corporate governance (CG) and corporate social responsibility (CSR) engagement by investigating their causal effects. Employing a large and extensive US sample, we first find that while the lag of CSR does not affect CG variables, the lag of CG variables positively affects firms’ CSR engagement, after controlling for various firm characteristics. In addition, to examine the relative importance of stakeholder theory and agency theory regarding the associations among CSR, CG, and corporate (...) financial performance (CFP), we also examine the relation between CSR and CFP. After correcting for endogeneity bias, our results show that CSR engagement positively influences CFP, supporting the conflict-resolution hypothesis based on stakeholder theory, but not the CSR overinvestment argument based on agency theory. Furthermore, firms’ CSR engagement with the community, environment, diversity, and employees plays a significantly positive role in enhancing CFP. (shrink)

Building on agency and resource-based view theories, this study investigates the level of environmental disclosure (ED) practices of family versus non-family firms and explores the moderating role of board gender diversity. We test our hypotheses on a 3-year (2018–2020) panel data sample comprising 324 observations of Italian small- and medium-sized enterprises traded on the Euronext Growth Milan. Findings show that, compared to non-family firms, companies with a family firm status are characterized by lower levels of ED. Gender diversity on the (...) board, however, moderates this relationship, reducing this gap, to the extent that the family firm status is associated with higher ED when the number of women directors is high enough to constitute a critical mass. We consequently contribute to the studies on family business, corporate governance, and corporate social responsibility. (shrink)

It is widely recognized that workplace sexual harassment has significant negative psychological and personal consequences, and employees facing harassment suffer reductions in productivity. Our contribution is to propose a novel measure of workplace sexual harassment risk and provide a fuller estimation of the firm value impact of sexual harassment. In contrast to recent studies that focus on short-run market reactions to media announcements of harassment scandals, we use employee job reviews to identify low-profile harassment incidents that better reflect the pervasive, (...) toxic environment pertaining to sexual harassment than do newsworthy scandals, and we measure the longer-term effect on firm value starting from the date when harassment risk affects employee morale. We identify firm harassment risk by analyzing employee job reviews and estimate the sexual harassment score (SH) through textual analysis of online job reviews. Our sample of high-SH firms, or firms with unusually high-SH scores, exhibits significant reductions in future stock performance and profitability. For example, firms with a top 2% SH score earn a value-weighted risk-adjusted stock return of − 17% in the 1-year period after high-SH classification, and this damage is concentrated in firms with higher investor attention. Furthermore, high-SH firms experience a decline in operating profitability and an increase in labor costs during a 5-year period around high-SH classification. Our evidence suggests that sexual harassment can cause greater damages to firm value than previously documented. (shrink)

This paper investigates the corporate social responsibility (CSR) structures of U.S. listed firms. We find evidence of a general tendency towards CSR specialization with almost three-quarters (73.91%) of these firms focusing on a single CSR dimension. The degree of specialization varies across industries and the single CSR dimension focused on also varies for industries with similar degrees of specialization. We find that firms with higher exposures to CSR concerns, international activities, larger size, and higher financial slack tend to diversify across (...) multiple CSR dimensions. More importantly, we find evidence that diversified CSR structures positively affect a firm’s value relative to a control group before and during the 2008 financial crisis. Our findings have important implications for corporate and portfolio managers, investors, and policy makers. (shrink)

Business Ethics, the Environment &Responsibility, Volume 31, Issue 3, Page 662-681, July 2022.

This article contributes to the general literature on the relationship between corporate social performance and corporate financial performance, as well as to the emerging HRM–CSR literature, by exploring the curvature of the relationship between HRM–CSP and CFP. We advance conceptual arguments in favor of an inverted U-shaped relationship. Our results demonstrate a significant quadratic relationship between HRM–CSP and CFP. We provide evidence that this relationship is not linear or S-shaped but rather inverted U-shaped.

This paper examines whether a firm’s financial performance is associated with superior environmental, social and governance scores in emerging markets of multinationals in Latin America. The study addresses the current research gap on this issue; it develops hypotheses and tests them by applying linear regressions with a data panel drawn from the Thomson Reuters Eikon™ database to analyse data on 104 multinationals from Brazil, Chile, Colombia, Mexico and Peru between 2011 and 2015. The results suggest that the relationship between the (...) ESG score and FP is significantly statistically negative. Furthermore, in examining environmental, social and governance separately to accurately determine each variable’s relationship to multilatinas’ FP, the results reveal a negative relationship. Finally, the empirical analysis provides evidence for a moderating effect of financial slack and geographic international diversification on the relationship between ESG dimensions and firms’ FP. This study furthers understanding of the relationship between ESG dimensions and FP for the Latin American business context. (shrink)

The inconclusiveness of previous research on the association between gender diverse boards and corporate social performance has led us to revisit the question in light of stakeholder management and institutional theories. Given that corporate social responsibility is a multidimensional concept, we test the influence of GDB on various groups of stakeholders. By considering the interaction between stakeholders’ power and directors’ personal motivations toward the prioritization of stakeholders’ claims, we find that GDB are positively related to CSR dimensions that are related (...) to less powerful stakeholders such as the environment, contractors, and the community. However, GDB do not appear to have a significant impact on CSR dimensions that are associated with stakeholders who benefit from more institutionalized power, such as employees and customers. (shrink)

We hypothesize that CSR serves as a control mechanism to reduce deviations from optimal risk taking, and therefore, CSR curbs excessive risk taking and reduces excessive risk avoidance. Based on the stakeholder theory, firms with CSR focus must balance the interests of multiple stakeholders, and therefore, managers must allocate resources to satisfy both investing and non-investing stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1718 US firms during 1998 to 2011, we find that stronger CSR (...) performance is associated with smaller deviations from optimal risk taking levels. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through the impact of CSR on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance. (shrink)

The World Bank recently noted: “Social license to operate has traditionally referred to the conduct of firms with regard to the impact on local communities and the environment, but the definition has expanded in recent years to include issues related to worker and human rights”. In this paper, we examine a factor that can influence the kind of work conditions that can facilitate or obstruct a firm’s attempts to achieve the social license to operate. Specifically, we examine the empirical association (...) between a company’s employee practices and the religiosity of its local community by investigating their fixed and endogenous effects. Using a large and extensive U.S. sample, we find a positive association between the “employee friendly” practices of a firm and the religiosity of the local community after controlling for several firm characteristics. In addition, after mitigating endogeneity with the dynamic panel system generalized method of moment and after employing several other econometric tests, we still find a robust positive association between the religiosity of the local community and employee-friendly practices. Since recent research has shown that the firm’s treatment of its stakeholders is a key to achieving an SLO, and since employees constitute a highly significant stakeholder group, we interpret our results as supporting the view that religion is an important influence on the kinds of employee practices that can increase the likelihood that a firm will acquire the SLO. (shrink)

Using a worldwide sample, we examine whether corporate social responsibility performance has an impact on the value of cash holdings. We find that investors assign a higher value to cash held by firms that have a high CSR rating. This result is consistent with the idea that CSR policies are a means for managers to act in the shareholders’ interests by mitigating conflicts with stakeholders. Finally, we reveal that CSR performance has a positive impact on the value of cash holdings (...) only for firms which operate in countries where shareholders are well protected from expropriation by managers and in countries where the institutional quality is high. (shrink)

We empirically examine the impact of corporate social responsibility (CSR) on CEO compensation using a large sample of the US firms from 1996 to 2010. We develop and test two hypotheses, the overinvestment hypothesis based on agency theory and the conflict–resolution hypothesis based on stakeholder theory. We find that the lag of CSR adversely affects both total compensation and cash compensation, after controlling for various firm and board characteristics. Our estimates show that an interquartile increase in CSR is followed by (...) a 4.35% (2.78%) decrease in total (cash) compensation. We also find an inverse association between lagged employee relations and CEO compensation. Our results are robust to the correction for endogeneity using instrumental variable approach. Taken together, our results support the conflict–resolution hypothesis, but not the CSR overinvestment argument. (shrink)

While past studies have enriched our understanding of the impact of returnee executives on firm market strategy and outcomes, we know relatively little about the relationship between returnee executives and firm nonmarket strategies. Grounded in upper echelons theory, this study explores the relationship between returnee executives and corporate philanthropy, the latter of which is an important nonmarket strategy in emerging economies such as China. Using data on publicly listed Chinese companies from 2010 to 2017, we find that the proportion of (...) returnee executives is negative related to corporate philanthropy. We also find that this negative relationship is strengthened by executive ownership, but weakened by corporate prominence and political connections. Our study makes important theoretical contributions to strategic leadership research, upper echelons theory, and the literature of corporate philanthropy. The managerial implications are also discussed. (shrink)

Using a large panel of elections in 44 countries, we show that national elections affect CSR in contrasting ways. We posit and find that in strong institutional environments CSR engagement responds negatively to uncertainty and decreases during election periods relative to non-election periods. However, in the context of institutional weakness, characterized by incomplete and captured national institutions, we find that CSR engagement increases in electoral periods, consistent with rent-seeking behavior. We discuss the implications of these results for both theory and (...) practice. (shrink)

Theoretical evidence suggests that corporate social irresponsibility (CSI) should produce long-lasting negative influences on firm performance. Yet, little empirical evidence exists in the literature to support this time-embedded research frame. This research was conducted by collecting a large set of firm data and by employing a series of vector autoregressive models to map out the longitudinal dynamic relationships between CSI and firm value under high versus low levels of two external factors, environmental dynamism and competition intensity, and one internal factor, (...) firm capability. The results show that CSI’s negative influences endure in scenarios such as high dynamism, high competition intensity, and low capability, but it has only a short-term impact on low-dynamism markets and does not produce significant effects on firm value under low-competition or high-capability conditions. These findings yield useful implications for CSI, resource-based theory, and environment theories as well as for managerial effectiveness of coping with social negativities. (shrink)

Why and how have supply chain codes of conduct diffused among lead firms around the globe? Prior research has drawn on both institutional and stakeholder theories to explain the adoption of codes, but no study has modeled adoption as a temporally dynamic process of diffusion. We propose that the drivers of adoption shift over time, from exclusively nonmarket to eventually market-based mechanisms as well. In an analysis of an original data set of more than 1,800 firms between the years 2006 (...) and 2015, we find that strong nonmarket labor institutions in a firm’s home country are critical to initiating and sustaining the diffusion process. Market mechanisms, such as investor scrutiny and brand risk, emerge as important later. Contrary to prior research, we did not find a significant effect from nongovernmental organization (NGO) pressure. We conclude that markets for corporate social responsibility can and do arise, but only after they are effectuated by nonmarket institutions. (shrink)

This paper examines the effectiveness of the use of executive compensation linked to Corporate Social Responsibility (CSR) goals across US firms. Empirical analysis of a cross-industry sample of 746 listed companies for the period 2002–2013 showed that the use of CSR-linked compensation contracts for Named Executive Officers (NEOs) promotes CSR performance. More specifically, we found that linking NEOs’ compensation to CSR goals produces positive effects in the 3rd year after adoption. As firms accumulate experience and learn how to use the (...) system over the following eight periods, CSR performance increases monotonically. Furthermore, experience accumulated over time affects the different specifications of CSR performance asymmetrically, by reducing both environmental and social CSR concerns and increasing only environmental CSR strengths. Interestingly, we also found that the simultaneous use of other CSR-focused governance systems moderates the effect of a firm’s accumulated experience in using CSR-linked executive compensation on CSR performance: the existence of a CSR committee at the board level and the public release of a CSR report are likely to have a positive moderating effect, while the purchase of a CSR audit has no moderating effect. (shrink)

This study analyzes how the board’s characteristics could be associated with globally corporate social responsibility CSR and specific areas of CSR. It is drawn on all listed firms, in 2016, on the SBF120 between 2003 and 2016. Our results provide strong evidence that diversity in boards and diversity of boards globally are positively associated with corporate social performance. However, they influence differently specific dimensions of CSR performance. First, we show that large boards are positively associated with all areas of CSR (...) performance, while specific and overall CSR scores are negatively associated with CEO-chair structures. Second, board gender diversity is positively associated with human rights and corporate governance dimensions. Third, age diversity is positively associated with corporate governance, human resources, human rights, and environmental activities. Also, our results provide evidence that outside directors care about CSR performance. Specifically, the presence of foreign directors is positively associated with environmental performance and community involvement, whereas CSR-Governance dimension is positively associated with the presence of independent directors. Regarding the director’s educational level, post-graduated directors are positively and significantly associated with overall CSR score and all CSR sub-scores, except the corporate governance one. When directors have multiple directorships, they are more concerned about human resources, environmental performance, and business ethics. Finally, our findings are robust only in non-family firms. In fact, family boards are less diverse than non-family ones; specifically, they have a lower number of independent, foreign, and high-educated directors. (shrink)

Academic research suggests that variances in contextual dynamics, and more specifically religion, may lead to disparate perceptions and practices of corporate social responsibility. Driven by the increased geopolitical and economic importance of the Middle East and identified gaps in knowledge, the study aims to examine if indeed there is a divergent form of CSR exercised in the region. The study identifies unique CSR dimensions and constructs presented through an empirical framework in order to outline the practice and perception of CSR (...) in a context with strong Islamic beliefs. The framework goes beyond the platform of mere Islamic philanthropy and is based on CSR-stakeholder management practices. Following an exploratory research design and collecting interview data from representatives of 63 organisations from Saudi Arabia, the United Arab Emirates and Oman, the study offers a snapshot of the CSR reality from the perspective of those living the phenomenon. The results suggest that the practice and perception of CSR in the examined context are largely grounded in the areas of social and altruistic actions but they cannot be examined in isolation from the religious context of CSR operation. This focus is mainly attributed to the dominant role of Islam in the examined sample, which leads to forms of non-structured or semi-structured approaches to CSR. Apart from the theoretical advancements offered to the CSR literature, the study also provides contributions for practitioners and policy makers. (shrink)

This study examines the impact of chief executive officer ability on firms’ corporate social responsibility performance. We find that firms’ CSR performance increases with CEO ability. Specifically, firms with more able CEOs are associated with more socially responsible activities and fewer socially irresponsible activities, and are associated with more stakeholder CSR rather than third-party CSR. We further find that the positive relation between CEO ability and CSR is weakened for CEO who is also the chair of the board and for (...) CEO who is close to retirement; and is weakened when the CSR emphasis exerted by a firm’s external environment is high. Our results are robust after controlling for firm fixed effects and to the use of multiple measures of CSR performance and CEO ability. Overall, our evidence is consistent with our conjecture that more able CEOs have less career concerns so that these CEOs are more willing to undertake long-term investments in socially beneficial activities, leading to better CSR performance. (shrink)

We examine the equity valuation effect of press releases of upgrades or downgrades reflected in the Covalence Ethical Quote, an index ranking the ethical performance of multinational firms. The index is updated quarterly and is comprehensive enough to include 45 criteria reflecting working conditions, impact of product, impact of production, and company institutional impact. Thus, it captures many dimensions of firms’ ethical performance that are not accounted for in previous research. Our research encompasses a joint test of the value relevance (...) of the index itself and the impact of ethical reputation on a firm’s value. We find first a significant causal relationship between stock market reactions and changes in the CEQ. Specifically, disclosures of positive changes in firm ethical performance cause increases in firm value. Second, cross-sectional analysis indicates a positive association between changes in firm ethical performance and both its financial performance and its financial reporting quality. Collectively, these results suggest that the CEQ conveys information that is useful to investors. Further, corporate measures taken to increase ethical performance are associated with positive benefits to shareholders. Finally, investors have concluded that good news about their firms’ efforts to be ethical is worth the cost. (shrink)

This study examines the impact of board diversity on firms’ corporate social responsibility performance. Using seven different measures of board diversity across 1,489 U.S. firms from 1999 to 2011, the study finds that board diversity is positively associated with CSR performance. Board diversity is associated with a greater number of areas in which CSR is strong and a fewer number of areas in which CSR is a concern. These findings support the stakeholder theory and are consistent with the view that (...) board diversity enhances firms’ ability to satisfy the needs of their broader groups of stakeholders. We find that gender, tenure, and expertise diversities seem to be the driving factors of firms’ CSR activities. Furthermore, we find that board diversity significantly increases CSR performance by increasing CSR strengths and reducing CSR concerns for firms producing consumer-oriented products and firms operating in more competitive industries. Our results remain robust using different measures of CSR performance, different estimation methods, and different samples. (shrink)

The European Commission has recently proposed the introduction of legally binding quotas for women on corporate boards of European companies. This proposal has put the spotlight on the question of whether increasing female representation on the board brings economic benefits to the firm. In order to shed light on the issue, this study investigates the direct and indirect effects of women on the board on firm value. We use a simultaneous equation model to estimate the effects of women on the (...) board on firm value, financial performance, and compliance with ethical and social principles adopted by the firm. We find no evidence that a higher female representation on the board directly affects firm’s value. However, we find indirect effects. Women on the board are positively related with financial performance (measured in terms of return on assets and return on sales) and with ethical and social compliance, which in turn are positively related with firm value. The findings in this study suggest that greater female representation on corporate boards of large European firms can increase firm value indirectly. Further, part of the indirect effect comes from stronger compliance with ethical principles, something that is not captured by accounting-based financial performance. (shrink)

In this study, we examine whether corporate environmental responsibility plays a role in enhancing operating performance in the financial services sector. Because achieving success with CER investing is often a long-term process, we maintain that by effectively investing in CER, executives can decrease their firms’ environmental costs, thereby enhancing operating performance. By employing a unique environmental dataset covering 29 countries, we find that the reducing of environmental costs takes at least 1 or 2 years before enhancing return on assets. We (...) also find that reducing environmental costs has a more immediate and substantial effect on the performance of financial services firms in well-developed financial markets than in less-developed financial markets. These results are economically and statistically significant and robust even after alleviating endogeneity and using an additional performance measure. We interpret our empirical results as supporting the social impact and reputation-building hypothesis. Our findings also suggest that policy makers dealing with corporate sustainability management should pursue an environment-centered industry policy not only at the manufacturing sector but also at the financial services sector, as firms in both sectors with lower environmental costs perform better. (shrink)

This article examines the empirical association between analyst coverage and corporate social responsibility (CSR) by investigating their simultaneous and causal effects, and its joint effects of CSR engagement and analyst coverage on firm risk. We find a positive association between the level and change of CSR engagement and the level and change of analyst coverage after considering simultaneity and causality. Based on the first-difference approach, we further find that the change in analyst following from the previous year affects the change (...) in CSR in the current period, whereas the change in CSR from the previous period does not influence the change in analyst following in the current period. Furthermore, we find that the change in CSR engagement as well as the interaction effect of changes in CSR and analyst coverage reduces the change of firm risk. When we examine the CSR strengths and concerns separately, analyst following does not significantly influence firms’ CSR strength but CSR concern activities decreases significantly as firms have more analyst followings. We further find the mediating role of financial analysts between CSR concerns (but not CSR strengths) and firm risk. We maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities. Taken together, we interpret these results to support the stakeholder theory-based conflict-resolution explanation that considers CSR engagement as a vehicle to reduce conflicts of interest between managers and noninvesting stakeholders but not the overinvestment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders. (shrink)

There is a distinct lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. This paper fills the gap in the literature by examining the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period 2009–2011 and controlling for audit (...) committee characteristics, board meeting frequency, and banks’ profitability, size and risk, we find evidence that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure. This indicates that, with regard to CSR disclosure, more independent boards of directors and larger boards are the internal corporate governance mechanisms which promote both shareholders’ and other stakeholders’ interests. Contrary to our expectations, CEO duality also impacts positively on CSR disclosure. From an agency-theoretical viewpoint, this suggests that powerful CEOs may promote transparency about banks’ CSR activities for their private benefits. While this could indicate that powerful CEOs are under particular pressure to appease stakeholders’ concerns that they might abuse their power by providing a high degree of CSR disclosure, it could also be a sign of managerial risk aversion or managers’ private reputational concerns. (shrink)

In this paper, we examine the relation between corporate social responsibility (CSR) and firm risk in controversial industry sectors. We develop and test two competing hypotheses of risk reduction and window dressing. Employing an extensive U.S. sample during the 1991-2010 period from controversial industry firms, such as alcohol, tobacco, gambling, and others, we find that CSR engagement inversely affects firm risk after controlling for various firm characteristics. To deal with endogeneity issue, we adopt a system equation approach and difference regressions (...) and continue to find that CSR engagement of firms in controversial industry sectors negatively affects firm risk. To examine the premise that firm risk is more of an issue for controversial firms, we further examine the difference between non-controversial and controversial firm samples, and find that the effect of risk reduction through CSR engagement is more economically and statistically significant in controversial industry firms than in non-controversial industry firms. These findings support the risk-reduction hypothesis, but not the window-dressing hypothesis, and the notion that the top management of U.S. firms in controversial industries is, in general, risk averse and that their CSR engagement helps their risk management efforts. (shrink)

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative association with managerial ownership, such relationship becomes significant (...) and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures. (shrink)

Using a panel data of 806 U.S. firms from 2006 to 2015, we find that in their ratings of corporate social responsibility performance, firms with top managers who attended religiously affiliated schools outperform their peers with no such managers. The positive relationship between religious school attendance and CSR performance is stronger among firms with lower level of community religiosity or less external monitoring. Our findings lend support to early theoretical work that suggests managerial CSR-oriented values can be key motivating factors (...) for CSR initiatives. (shrink)